G. Breuer's Newsletter
October 2009
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter where you will find an update on:
Please do not hesitate to contact partners Jorge Otamendi and Diego Fissore for any specific question you may have after reading it or for any other issue you may need advise on.
Best regards,
G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
October 2009 had very important political news. On one side, and as anticipated, the Government is pushing every piece of legislation that it can prior to the change in Congress composition on December 10, 2009, which will begin to reflect the results of the past June 28 elections and, because of that, the official party’s majorities will be lost or seriously compromised.
In that respect, a very controversial Media Law was sent and approved. In the last few days, a law with modifications to the political parties’ formation was sent.
Also, this past month two important measures were announced. First, a proposal for the holders of defaulted securities who did not enter the 2005 exchange and, consequently, a draft legislation to amend Law 26.017 or Lock Law, which prohibited the reopening of the exchange, was sent to Congress. The amendment is seeking to suspend the effects of the Lock Law. And finally, a “payment-per-child” was announced, which is a payment per children for families that are unemployed or informally employed. The novelty is that such payment would be faced with ANSES’s resources.
We also mention that the 2010 budget was approved, containing all the typical K paraphernalia (superpowers and, according to many opposition members and analysts, hidden expenses that if duly registered, would indicate that next year there will be budgetary deficit for the first time in the Ks time).
The sole enunciation of the subjects of the legislation involved (social security, media regulation, electoral system and foreign debt) gives an idea of the importance of the subjects that are being dealt with in a manner and with a speed that can only create doubts as to the motivations behind the involved legislation.
We will briefly review the subjects enumerated above. All of these issues caught the attention of the entire political, social and economic establishment, reason for which we comment them here.
The Media Law was passed in the Senate on October 10, with a 44 to 24 win for the official party. Such Media Law will force many of the current media chains of Argentina to disinvest and break-up geographically the ownership of cable TV networks, radio chains and open TV channels.
Although it is denied, the law according to many seems to be directed at breaking up the Clarin Group, the main media group in the country, attacked fiercely by the K administration in the past year. That happened after many concessions that the same Mr. Kirchner granted to such group, such as the approval of the merger of two most important cable networks of the country. Apparently, the relationships between the Government and the Clarin Group fell apart after the farm conflict last year, and the Government blamed it on Clarin’s coverage the change of humor in many areas of the country, which became staunch opponents of this Administration.
The idea behind this new Media Law, according to some critics, is to open up the possibilities for entrepreneurs friendly to the Government to take control of more communication channels to then be able to control criticism. It is unclear whether that will be achieved.
The necessary implementation of the Media Law recently passed is now being pushed in this Government’s manner (the President designated the authority that will implement it, even when the opposition refused to designate the members it has to appoint prior to December 10). Thus, the media coverage, particularly in Open TV Stations and Cable Stations (particularly the TN or Todo Noticias channel, main target of the Government) may change in the coming days as it is likely to happen with the broadcasting business in Argentina.
We have to mention that there were allegations of vote-buying by the official party. For instance, the chairman of the Radical Party said that a Senator of a needed province called Corrientes may have been under a lot of pressure to vote in favor of the Media Law. There may have been something to explore since the involved senator, who opposed to the law at the beginning, acknowledged that she voted in favor of the Law because the Government of her province needed federal funds to pay State administration salaries. We mention these events in order to give an idea of the extremes to which things are taken in the current Argentina.
The second issue that we would like to comment here is a draft law that was sent to Congress with a “political reform”. The so-called “reform” is said to replicate the system currently valid in one province of Argentina, Santa Fe. The new political law would imply, if passed, that all political parties will have to run mandatory primaries on the same day to elect authorities, including the presidential candidates. Losing candidates in internal primaries could not run in the corresponding open presidential elections and the private funding of campaigns in radio and TVs are banned. Only candidates who obtained at least 3% nationally in a national primary would be able to be candidates for presidency.
The opposition –even the Radical Party who is said to benefit from this law and left wing supporters of the Government in some instances- immediately reacted to this draft law and called it a trap by Mr. Kirchner to quash the internal opposition in the official party, since he controls the all-powerful apparatus of the Great Buenos Aires area. Also, the fact that private contributions to political campaigns are seriously hindered is a direct blow to the politician who defeated Mr. Kirchner in the June 28 elections, who is a millionaire who aired many ads that placed him as winner, stunning Mr. Kirchner who spent millions of funds in ads and propagandistic public works.
According to many opponents, Mr. Kirchner does not want to run any risks and wants the press controlled and a tailor-made electoral law that would by law ban opponents and contributors to opponents’ campaigns. This draft law is seen by many opponents as a clear scheme of the current strong man in the official party to try to perpetuate himself in power, given that voters would have abandoned him. The issue to be seen is whether people will back the irritated Mr. Kirchner even if he manages to be a candidate with this additional bending of rules.
Apparently, anything is possible in Argentina for Mr. Kirchner, but for gaining popular backing. His name has a very high negative image –some say over 80%-, which does not seem to change. That may be the real problem that the current administration will have to face sooner or later. Then, this Administration may be –unknowingly and unwillingly- working for its successor. Certainly in the current month there will be important developments on this front.
Another relevant political news of October 2009 is that the Argentine Minister of Economy announced that an arrangement with the holders of defaulted Argentine securities who did not enter the 2005 exchange will be pursued, although not many details were provided. The current amount of securities in default are said to be close to US$ 20 billion. Accordingly then, filings were made in the US Securities and Exchange Commission and in other countries where holders of those securities are located. Also, a draft amendment of the 2005 Law 26.017 –or Lock Law since it closed the possibility of the reopening of the exchange open in 2005- was sent to Congress. The amendment of the Lock Law will pursue the suspension of the validity of such legislation, until the end of 2010 or when the current exchange is closed by the Executive Power. The current exchange cannot be more beneficial to security holders than the 2005 offer, difficult concept to grab since it is very difficult to compare offers separated by almost five years.
As said, not many details were released as to the specific terms of the arrangement. There is plenty of information in the market regarding the likely terms of the proposal, which would take the form of an offer from intervening banks (Citi, Deustche and Barclays) to Argentina. As to what the markets takes as likely terms of the offer, the cut in principal may be around or over 66% -some say that the cut would be 75%-, there may be new Discount bonds being issued maturing in 2025, and coupons for past interest payments and GDP growth may be issued (it is being studied). Investors or the intervening banks will have to provide fresh funds to the Government of an amount of 10% of the securities tendered.
The Ministry of Economy and the intervening banks are saying that a 50% floor of acceptance is to be expected, and the final acceptance may climb to 75%.
The idea of the Government with this transaction would be to leave the default behind and then also obtain –through a high acceptance to the proposal- a weakening of the legal actions in the US, mainly, that have troubled Argentina with attachments. Also, the Government seeks to arrange the main obstacle to the financial markets, which step it needs because the local and intra-state sources of funds are showing clear signs of exhaustion.
It is unclear as of now which is the level of acceptance to the proposal given that the specifics of the offer are unknown. The issue according to many is whether a mildly high acceptance will place the Government where it wants to be, that is, back in the financial markets and with Judges in the US less likely to pay attention to claiming creditors. According to analysts, this proposal is positive, but by no means implies that the rest of the elements that are important to those ends will cease to count, such as the fundamental of the economy. Reasons for which, we will have to wait on this issue yet.
Finally, in the last days of the month, the President, Ms. Kirchner that is, launched a 180 Argentine peso subsidy for children and teenagers under 18 years of age whose parents are unemployed or informally employed, and are therefore out of the family benefits that formally employed workers have. Certain conditions will be placed to secure the plan, such as that the children must be vaccinated and enrolled in schools. The funds for such payments, according to analysts, will be provided by ANSES –State retirement agency- or by one of the funds its handles, and the new plan will cost $pesos 10 billion, approximately. The new plan would replace the existing aid plans currently in place.
As it is frequent in this Administration, big announcements only provide a very general outline of the measures and then details follow. Many opposition parties and organizations were seeking a subsidy similar to the one launched by the Government, but the current one was criticized by certain political opponents as politically motivated. We all hope that this plan, when implemented, reaches its ends.
The issue related to poverty levels recently was very much debated as a byproduct of the manipulation of official statistics. As a result of such manipulation, since the inflation was underestimated, many indexes that depended on inflation, such as poverty levels, were said to be indirectly tampered also. The Catholic Church, the political opposition, and certain social organizations alerted as to the increase in poverty levels and urged measures to be taken, given that the current systems were insufficient or wrongly channeled. Recently, certain scandals exploded because some left wing social organizations that received plenty of funds from the Government were seen as perpetrating violence on the political opposition when it denounced that these million of pesos had no effective control by any authority and that, thus, the Government is channeling funds for political purposes.
It appeared that the Government needed to do something to avert criticism and produced this plan. It is too early to see how good the system is. It is worthy of note, though, that the resources would be provided by ANSES, which further evidences that ANSES funds, under the different legal structures, are being used for many State purposes in addition to paying retirees. This has raised some criticism. As said before we all hope that the assistance needed reaches the persons in need.
The issues we commented here give an idea of the hectic political times that Argentina is going through and of the risks that Argentina is facing of decreasing the quality of its democracy. And this already complicated political environment is also influenced by a high level of confrontation on all fronts and by alleged attacks on the free press by among other things, indirect monitoring of journalists, politicians and entrepreneurs.
In the meantime, the opposition is trying to group itself, but it finds it difficult in an environment of bending rules, as they say, on the side of the Government.
These are indeed difficult times in Argentina. Let’s hope for the best and that consensus is gained on the main problems that the country, not the Government or the opposition, has to face.
As reported in the Political Section, one of the most important economic news of the month is the announcement of the reopening of the exchange of defaulted securities. We refer to those comments.
The IMF announced that there were no current plans for the IMF to review Argentina’s economy. IMF’s review has become necessary to reassure investors, and would also help restore credibility to Argentina’s economic data, which has been widely questioned for being manipulated by the current authorities in the official statistics office (INDEC). Government officials have said they will not accept any review that has conditions attached.
This Administration announced that in September 2009, Argentina’s primary surplus shrank nearly 94%. The surplus totaled 223.2 million Argentine pesos, falling from 3.53 billion in 2008. Falling global commodity prices for Argentina’s export and an economic slowdown made tax revenues decrease recently.
Argentina’s September 2009 trade surplus narrowed 43% from the same month last year, with exports falling even faster than imports. September’s 926 million US dollars surplus, which fell short of analyst’s expectations, is the smallest since January.
According to INDEC, September’s construction activity slid 1.9% yearly and grew 0.3% with respect to August 2009. And according to a government’s report, industrial production rose 0.1% in September –yearly- , beating expectations and marking the first rise since June. A 1.3% fall was expected; however, Argentine economy is showing some signs of recovery, with some of the hardest-hit sectors registering smaller declines in output. Steelmaking was down 19.6% from September 2008, but rose 0.2% from August.
The Argentine Industrial Union, or UIA, informed that in August industrial activity was down by 9.7%. The INDEC showed just a 1.4% retraction for the same month.
The information provided by some private reputable firms continue to be worrisome. For instance, Fundación de Estudios Económicos Latinoamericanos (FIEL) –a reputable private consulting firm- informed that in September industrial activity dropped by 8.2% as compared with September 2008, and improved by 3.2% in August. The decrease in industrial activity in 2009, according to FIEL, was 8.9% in yearly terms, and slid by 6.9% in the third quarter.
With respect to inflation, INDEC published September’s IPC increase and placed it in 0.7%. This figure was higher than expected, and is closer to private estimated statistics, which calculated inflation in around 0.9%. This is the third consecutive month in which INDEC has reported inflation that was slightly higher than in the preceding months.
As seen, the numbers we reported are showing that Argentina is facing difficult times, although the worst of the crisis may be over
You may read the October edition of our Boletín Informativo, G. Breuer’s monthly publication focused on general legal information sent to our Argentine clients & friends.
For more information on local legislation, you may read the October edition of our Boletín Informativo sent to our Argentine clients & friends.
G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
Please note that the information given in this bulletin is for general purposes only and does not intend to provide comprehensive legal advice on any issue.
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© G. Breuer, 2009.